Trade Secrets & Employee Mobility

Vienna Beef, the official hot dog of the Chicago Cubs, recently struck out in its effort to obtain a temporary restraining order against hot dog rival Red Hot Chicago, Inc. and the grandson of one of the founders of Vienna Beef, Scott D. Ladany.

Please join the attorneys of EpsteinBeckerGreen on June 7, 2011, at the National Press Club, as we present eight panels covering labor and employment topics that have increasingly impacted employers in the health care industry. 

Our first panel, entitled Significant Labor and Employment Issues that Affect Health Entities, will include representatives from the health care industry, such as a hospitals, skilled nursing facilities, and emergency medical services. These executive panelists will discuss the critical labor and employment issues they are currently experiencing ...

Last year, the Gonzaga Law Review published an exhaustive study of federal court trade secret litigation. This week, it published a companion study of state appellate court decisions involving trade secrets during the period between 1995 and 2009.

Please join me and other attorneys from my firm, EpsteinBeckerGreen, as we present a full-day program covering labor and employment law topics that have increasingly impacted employers over the past two years. In addition, we will offer an outlook of what we should expect in the coming two years.

A former Technical Director for a painting and coating company who pled guilty to downloading trade secrets from a secure computer system and transferring them to external thumb drives recently was sentenced to 15 months in federal prison to be followed by three years of supervised release.

The Iowa Court of Appeals recently affirmed a jury's conclusion that detailed information about insurance policy holders was a protected trade secret.

When drafting employee confidentiality agreements, there is a tendency to think that no restriction can be too tight. However, a recent decision by the Illinois Appellate Court, The Town of Cicero v. Wayne A. Johnson, held that a confidentiality provision in a separation agreement was so onerous that the entire provision was unenforceable.

In the latest example of a significant international trade secret theft resulting in a federal criminal prosecution, chemist David Yen Lee recently pleaded guilty in federal court in Chicago to "knowingly and without authorization" possessing one or more trade secrets of his former employer Valspar Corporation with intent to convert them "to the economic benefit of someone other than the owner."

A July 27, 2010 decision by the United States Court of Appeals for the Third Circuit, in Bimbo Bakeries USA, Inc. v. Botticella, No. 10-1510, upheld an injunction preventing a senior executive from commencing employment at Hostess Brands, Inc., a bakery rival to the plaintiff Bimbo. The decision is notable in that the Court enjoined Mr. Botticella's employment, in the absence of any non-competition agreement, on the basis that there was a "substantial likelihood," but not an "inevitability," that Mr. Botticella would disclose or use Bimbo's trade secrets in the course of his planned employment at Hostess.

In a recent decision issued by the Supreme Court of the State of New York, New York County, a lawsuit brought by Marsh USA Inc. against two former employees and a competitor was sustained in the face of the defendants' challenge to the complaint on grounds of forum non conveniens and failure to state a cause of action. The decision is notable for its application of New York non-competition law to California residents, and Marsh's inclusion of forum selection clauses and choice of law provisions in its agreements with the individual defendants appears to have enabled it to avoid the draconian effect of California law upon those individual's non-compete agreements.

When hiring new employees, you can minimize the risk of inadvertently becoming embroiled in trade secret litigation by taking a few simple steps.

A recent New Jersey Supreme Court decision, Stengart v. Loving Care Agency Inc., et al., calls into doubt the enforceability of employer policies prohibiting employees from using the employer's computers for personal use, and effectively holds that an employee's communications with personal counsel concerning matters adverse to the company may occur during work time using the employer's resources.

A new study of federal court trade secret litigation published in the Gonzaga Law Review on March 17, 2010 confirms that the number of lawsuits involving alleged trade secret misappropriation continues to grow exponentially.

A former engineer and salesman for DuPont, Michael Mitchell, was recently sentenced to 18 months in prison after pleading guilty to stealing trade secrets and providing them to a Korean rival of DuPont.

A recent Alabama Court of Appeals case, Jones v. Hamilton, Case No. 2081077 (January 22, 2010), illustrates how a failure to take reasonable steps to maintain the confidentiality of documents and information will result in the loss of trade secret status.

The importance of corporate security and vigilance with regard to trade secrets was demonstrated by recent events in Syracuse, New York. On February 3, 2010, the FBI and the U.S. Attorney's Office in Syracuse announced the arrest of 29 year-old Shalin Jhaveri, who is charged with stealing trade secrets from his employer.

A recent New York case, Edelman v. Starwood Capital Group, LLC, 2009 NY Slip Op. 09309 (1st Dep't December 15, 2009), is another reminder that companies should take appropriate precautionary steps when dealing with confidential information.

An article recently published in the New Jersey Law Journal reviews potential sources of information to be searched and procedures that can be followed by employers faced with a departing employee who may have misappropriated the the employer's information, client lists and know-how.

The recent case of Perlan Therapeutics v. Superior Court (California Ct App 11/04/2009) serves as a reminder that when litigating, the definition of the trade secrets at issue is important.

A recent decision from the First Circuit Court of Appeals, Astro-Med, Inc. v. Nihon Kohden America, Inc. and Kevin Plant, which affirmed a jury verdict granting the plaintiff more than $1 million, illustrates that it is important for employers to be familiar with applicable state law with respect to their employees' continuing obligations to previous employers arising from restrictive covenants in employment agreements.

EpsteinBeckerGreen's 28th Annual Labor and Employment Law Client Briefing Conference, entitled "Employers Under Siege: Managing Your Workforce in Unprecedented Times," will be held this year on Thursday, September 24th at the Millennium Broadway Hotel in New York City.

In Valentine Capital Asset Management, Inc. v. Agahi, 174 Cal. App. 4th 606, the California Court of Appeals, First District, recently looked at the issue of whether an associated person of a FINRA member could be compelled to arbitrate his company's trade secret and unfair competition claims against former employees who were also associated persons of a FINRA member.

Although issues involving misappropriation of trade secrets are frequently litigated, they rarely result in criminal charges. However, according to recent stories in The Chicago Tribune, Reuters.com, and other media outlets, a former employee of Goldman Sachs was recently arrested by the FBI for allegedly stealing trade secrets (software code regarding a proprietary trading system) worth millions of dollars.

While there is no magic wand that will prevent a theft or stop a thief in his tracks, a company can substantially lower the risk of trade secret misappropriation through proactive policies and procedures.

The Economic Espionage Act ("EEA"), 18 U.S.C. §§ 1831-39, gives companies another tool in the fight against misappropriation of trade secrets to "adopt a national scheme to protect U.S. proprietary economic information" and to combat the rising tide of espionage against and threats to corporate trade secrets. It criminalizes misappropriation of trade secrets.

A recent decision from the United States Court for the District of New Jersey demonstrates how a corporation's tenacity in seeking electronically stored information despite the intransigence and apparent spoliation of evidence by a former employee and his new company led to positive results for the corporation.

The New York State Supreme Court recently shot down a request to enjoin two former salesmen and their new employer from tortiously interfering with a real estate investment firm's business, from interfering or contacting its customers or using or exploiting its trade secrets.

Many New York attorneys, when seeking a preliminary injunction against a party that has misappropriated their clients' trade secrets, will argue that a presumption of irreparable harm to their clients automatically arises upon the determination that a trade secret has been misappropriated. A recent decision of the U.S. Court of Appeals for the Second Circuit, however, holds that misappropriation of trade secrets does not automatically lead to irreparable harm. The aggrieved party only faces irreparable harm if the misappropriator will disseminate the secrets to a wider audience or otherwise irreparably impair the value of the secrets.

A study released by Ponemon Institute LLC on February 23, 2009 confirms a human resources truism: departing employees frequently steal company data while heading out the door. The study contains a wealth of other interesting statistics about employee data thefts.

In a decision, dated January 26, 2009, in the matter Epiq Systems, Inc. v. Hartie, Index No. 111950/08, the Supreme Court of the State of New York, New York County, by Judicial Hearing Officer (and retired Justice) Ira Gammerman, denied a preliminary injunction in aid of arbitration sought by plaintiffs Epiq Systems, Inc. and related companies (collectively, "Epiq"). Epiq claimed that it faced inevitable disclosure of its trade secrets by three individual defendants formerly employed at Epiq and their new employer Kurtzman Carson Consultants LLC ("KCC") with respect to three computer programs, including one web-based system, developed and used by Epiq to solicit ballots and tabulate ballot results in Chapter 11 bankruptcy proceedings, and in analogous foreign proceedings, involving widely-held public securities.

If, as expected, the Paycheck Fairness Act becomes law (it was passed by the U.S. House in January 2009 and is currently pending in the Senate), employers may want to review provisions in confidentiality agreements and policies that expressly bar the disclosure of wage information.